The Lake Chelan ferry monopoly, argued at federal appeals court

Lady of the Lake during the 2002 forest fireSeattle Times photo/Alicia Hansen

A challenge to the private ferry monopoly on Lake Chelan, James Courtney v. Jeffrey Goltz, was heard Monday, May 6, in federal appeals court in Seattle. Courtney, whose family owns the Stehekin Valley Ranch, has been trying to start a ferry service between Chelan and Stehekin since the late 1990s, and the state won’t let him.

Courtney is represented by the Institute for Justice,a public-interest law firm that promotes free markets. Its attorney, Michael Bindas, argued that the state has to show a public necessity in order to create a private monopoly, and that the state has shown no such necessity at Lake Chelan.

The Washington Utilities and Transportation Commission was represented by Fronda Woods of the Attorney General’s office. She argued that the state has the clear power to limit service to one carrier.

And it has done so. The history is outlined in the WUTC’s report of November 2010. Originally, anyone could ferry customers on the lake. The state imposed rate and safety regulation in 1911. By 1914, there were four ferry companies, only one of them operating in winter. In the 1920s, the state advanced the argument that ferry service on Lake Chelan was a natural monopoly. In exchange for giving one company an exclusive franchise, that company would agree to offer safe and reliable service year-round. The state granted the exclusive franchise in 1927, with year-round service.

Competitors petitioned the state to be allowed into the market in 1953, 1972 and 1976. In each case the existing company protested, the state looked at the circumstances and denied the petitions. In 1997, Courtney petitioned and was denied, on the grounds that there was “lack of evidence of any unmet need for service.”

In an open market, “unmet need” is not a standard a new entrant has to meet. You get your boat, safety equipment, insurance, etc., hire employees and give it a shot. In a normal business situation you don’t have to prove to the government that the existing company isn’t meeting the demand. At Lake Chelan a newcomer is required to show that. The question is whether this is so unreasonable it violates the newcomer’s rights.

Monday’s case was the appeal. I listened to the oral argument, which is available on the Ninth Circuit Court of Appeals web page. Of the three judges, Michael Daly Hawkins, Sidney Thomas and Jacqueline Nguyen, Hawkins was the most sympathetic. He seemed offended by a system in which a company with a monopoly certificate could block an applicant, and in which the applicant “got danced around by the licensing authority.”

Nguyen was the least receptive to Bindas’s arguments. “Licensing does not preclude all uses of these waters,” she said, meaning that Courtney could use his boat on the lake for other things.

Thomas, at one point, seemed worried that a constitutional ruling in favor of applicant would set a precedent for other ferries.

The current service, owned by Lake Chelan Recreation Inc., is hardly a big one. In 2008, the company reported revenue of $1.6 million, fuel charges of $400,000 and a small profit. In several previous years there were small losses.